Acorn,For quite a while I have suggested that Santos buying into...

Acorn,

For quite a while I have suggested that Santos buying into ESG prevented ESG being taken out by a third party. The HGO selldown, allowing for Santos to buy in without creating a takeover of that time, met the needs of HGO, ESG and Santos. HGO wanted out (with potential upside), ESG wanted more time for reserves growth and commercial development, and Santos also wanted more time for offtake and equity selldowns, raising debt, other none-core asset sales and the like.

The two players with the biggest need for the gas are Origin and BG (especially if Shell ends up securing BOW at some point). They are the likely predators whom the Santos buy-in blocked.

The fit for ORG could hardly be better. They have already invested in retail in NSW (so, they have the distribution network, just not the upstream gas to feed it.) They have gas-fired power projects ready to go, but not the gas in NSW to feed them. Did I mention the rights revision torpedoing a hole in ORG APLNG project? And with the coming Carbon Tax and the tripling in demand by 2015, having gas in NSW is not a nice-to-have for ORG, it is an imperative. Otherwise, they will be a buyer and price taker from Santos who will own much of the gas in NSW.

So I strongly believe ORG is a third party with acquisitive interests in ESG. And so, ironically, does db76.

The other prime candidate is BG. Currently marketing for that all-important 3rd Train (without the reserves or CR to support that), behind where they want to be in their development, partly due to the floods, major land access and community liaison problems, in need of diversity of supply, in need of the requisite flows at the right time also ... You can see the appeal of owning a large gas resource, under the State Forest, and with whom ESG has already got a land-access deal with...

It may well be that BG and ORG, who already have a relationship, will act together. This would overcome FIRB concerns, ACCC concerns, and allow for some supply point flexibility. If they secured ESG, ORG would use the gas in PEL 238 to feed the NSW gas-fired power market, freeing ORG up to supply more of their QLD gas for BG and their hungry Asian buyers. Origin don't need to be in LNG. That is not their core business. And due to price arbitrage, ORG benefits from rising gas prices, whilst others to the hard yards opening up the market to international pricing. As long as ORG own the gas at source, and in the areas where they need it.


Is there a smoking gun which provides proof that either these two 'third parties' will intervene and try to unseat Santos? No, of course not. I can no more prove that than I could prove, before it happened, that Santos wanted to take over ESG. All that I can point out is the great need for these parties to own a large gas resource in NSW - only time will tell if they take action and bid for ESG (or indeed BOW). That is the $64,000 question.

There are a couple of other reasons why I believe there is third-party interest in owning ESG. But not ones I feel the need to disclose publicly.

Yaq